Court releases former ADP sales reps from noncompetes

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Dive Brief:

A federal district court in New Jersey has lifted constraints against two former ADP employees who signed noncompete agreements (ADP, LLC v. Lynch, Halpin, Nos. 16-cv-01053, 16-cv-01111 (D.N.J. April 2, 2019)).

One of the former sales reps previously was sanctioned for soliciting ADP clients for his new employer, Ultimate Software; the other had never violated the terms of the noncompete.

The court found that, even assuming the noncompetes were enforceable, ADP's enforceable interest had expired due to the passage of time. Accordingly, it lifted the preliminary injunctions as to both of the former sales reps and declined to impose new sanctions for conduct occurring after the one-year period of the restrictive covenant.

Dive Insight:

Noncompetes can be difficult to enforce; employers often need to show that a violation of the agreement would hurt a business substantially. Because they inherently impose constraints — sometimes substantial — on a individual's ability to earn a living, employers must be able to show that a noncompete is both justified and reasonable.

While noncompetes were once reserved for high-level employees, they are starting to trickle down into all levels of the workforce. Jimmy John's sandwich shops, for example, recently paid $100,000 to settle a dispute about its use of two-year noncompetes for its sandwich makers and delivery drivers; the Illinois Attorney General claimed the noncompetes were overly broad. Since then, the company has discontinued its use of the agreements.

It's worth noting that noncompetes must be appropriately tailored in order to be enforceable. A five-year noncompete may be reasonable for an executive, for example, but not for a sales rep, experts previously told HR Dive. Geography can also play a big role in the enforceability of noncompetes. They have long been unenforceable in California, and New York City is considering eliminating noncompetes for any worker eligible for overtime under the Fair Labor Standards Act.

When evaluating whether noncompetes are worth the effort, employers may want to consider whether they're mainly targeting high-level employees in possession of uniquely valuable information or skills. But for rank-and-file workers, the costs may outweigh the benefits. Noncompetes can suppress employees' earnings on a long-term basis and even drive many to seek work out of state, according to one study.